Adding Danone and Total, removing Orange and Royal Dutch Shell
* Adding Danone (BN FP; EUR68.88; Buy)
We are attracted to Danone because if offers non-EU exposure and earnings
visibility, two key attributes at a time of heightened economic and political uncertainty
in Europe (see European Radar: The eye of the storm, 29 July 2016). The Q2 results
beat expectations and we see strong underlying fundamentals supporting continued
top-line growth, which we expect to average c5% over the forecast period to 2020e.
This underpins our forecast that Danone will generate c8% EPS CAGR (2014-20e).
* Removing Orange (ORA FP; EUR13.69, Buy)
We still have a Buy rating on Orange, but remove it from the portfolio because we
believe that Danone offers a more attractive investment opportunity.
* Removing Royal Dutch Shell A (RDSA LN; GBp1944, Buy)
We retain a Buy rating on Shell as we believe its long-term free cash outlook
supports the dividend outlook. However, we now see fewer catalysts following the
closure of the BG deal in February and the 7 June strategy update.